Uber and Lyft are threatening to shut down their operations in California, and experts warn that 'drivers are the ones who get screwed' (UBER, LYFT)
Uber and Lyft have said they may shut down their California operations on Friday, arguing that they won't be able to comply with a law mandating that drivers be classified as employees. But experts told Business Insider not to expect it to harm either company's business very much — it's drivers who have the most to lose from a shut-down. "Essentially, I feel like someone who is almost getting justice, but in the meantime, getting blackmailed for it," Edan Alva, a Lyft driver based in the San Francisco Bay Area, told Business Insider. "What they're essentially doing is telling drivers, 'You don't deserve us following the law for you. If you force us to do that, we will make sure that you suffer even more.'" Harry Campbell, founder of the blog The Rideshare Guy, told Business Insider that the situation is similar to what happened in Austin, Texas, in 2016: Uber and Lyft left town over a legal issue they felt would have a "material, negative impact" on their business. "Everyone was shocked that Uber and Lyft pulled out and it basically happened overnight. And I think the same thing is going to happen here," Campbell said. Visit Business Insider's homepage for more stories.
Come Friday, Californians may be facing a new transportation reality — one that doesn't include Uber or Lyft. The ride-hailing companies have threatened to shut down their operations in the state of California rather than comply with a state law that requires them to classify their drivers as employees. Both companies have until Thursday to adhere to the regulation. Experts told Business Insider that not only do they expect Uber and Lyft to make good on their threats to suspend operations, but that the outcome won't hurt either company's business — it'll only hurt drivers. A years-long labor fight is coming to a head Uber and Lyft are fighting a law known as AB5, which went into effect in January. It stipulated that gig-economy companies like Uber and Lyft would need to reclassify their workers and provide benefits like sick pay and health insurance. The passage of the law was seen as a victory for labor rights activists, but both companies argued that their position as a technology platform doesn't require them to treat their workers as employees. When Uber and Lyft refused to comply with the law, California's attorney general sued them and won. Both companies are now contending that it won't be possible for them to reconfigure their business models to meet the deadline, and that they may have no choice but to shut down. "Lyft cannot comply with the injunction at the flip of a switch," John Zimmer, Lyft's president, said last week during an earnings call. "Reclassifying tens of thousands of self-employed drivers would be a significant challenge in normal times. And in the current pandemic environment, that would be nearly impossible." Uber CEO Dara Khosrowshahi told MSNBC on Wednesday that "it's hard to believe we'll be able to switch our model to full-time employment quickly." The companies are hoping to get a ballot measure known as Proposition 22 passed in November, which would continue to classify drivers as contractors. It's the possibility of this ballot measure getting passed that's stopping either company from complying with AB5, according to Harry Campbell, a ride-hailing expert and founder of the blog The Rideshare Guy. "If they did have to convert drivers to employees and then they won the ballot initiative in two months, it doesn't make a whole lot of sense for the flip-flop," Campbell said. "I think from a business point of view, it just doesn't make sense for them to do it, even if they wanted to do it at this point."
What happened in Austin Campbell likened the current situation to one that played out in Austin, Texas, in 2016. In May of that year, Uber and Lyft shut down in the city after voters upheld strict regulations on the companies and their drivers, particularly around more stringent background checks. But when Uber and Lyft left town, a ride-hailing cottage industry sprung up in their place. In the aftermath of their departure, residents and drivers created a Facebook group for sourcing rides, "an open marketplace where riders connect directly with drivers," as it described itself at the time. There was no surge pricing, no need to give the company a cut, the option to schedule a ride well in advance, and the ability for drivers to set their own prices. At the same time, no less than seven new ride-hailing startups popped up in the city, all hoping to nab a piece of the market share Uber and Lyft had left behind. Uber and Lyft have since made nice with Austin and re-entered the market. But Campbell said he expects the California situation to play out in a similar way. Although the reasons behind their departure from Austin were different, the stakes are similar. "Everyone was shocked that Uber and Lyft pulled out and it basically happened overnight. And I think the same thing is going to happen here," Campbell said. "If you look at the companies' history, there's certain issues that are kind of like cornerstone issues for them, where they feel it would have a huge, material, negative impact on the business or set a bad precedent." Adhering to the law in California, he said, could "open the floodgates" for other states to impose the same measures. Edan Alva, a Lyft driver based in the San Francisco Bay Area, told Business Insider that if Uber and Lyft do shut down, he expects other startups will attempt to take their place, much like what happened in Austin. "I'm looking forward to other companies getting into the market and replacing them, I can tell you that," Alva said.
'Drivers are the ones who get screwed' If Uber and Lyft do shut down on Thursday, it's drivers that will feel the brunt of that decision, Alva said. As the deadline looms, he said he's feeling "somewhere between hopeful and outraged and uncertain." "Essentially, I feel like someone who is almost getting justice, but in the meantime, getting blackmailed for it," Alva said. "What they're essentially doing is telling drivers, 'You don't deserve us following the law for you. If you force us to do that, we will make sure that you suffer even more.'" Alva said he's concerned about what a shut-down would mean for workers who don't have the option to stop working, even for a short period of time. "We are talking about the most vulnerable population out there," Alva said. "For some people here, stopping to work for a couple of weeks can mean becoming homeless. And these companies just play with it as a tool to get what they want." Campbell said he doesn't expect a shut-down to have as big of an effect on Uber and Lyft as it might have before the coronavirus outbreak. With ridership down across the board, he argued, a shut-down isn't as meaningful given the current state of the world. But while Uber and Lyft are seeing fewer rides these days, the rides they are seeing are meaningful, Campbell said. Riders right now tend to be frontline workers or essential workers, people that need to get to the grocery store, or people who just don't feel safe using public transportation. Still, at the end of the day, riders have more options to get around. Drivers, on the other hand, have fewer options for employment. Campbell said he's been trying to warn drivers to prepare for "the worst-case scenario," and to have a backup plan in place. He's been urging drivers to sign up to drive for Uber Eats, since Uber's food delivery service won't be affected by a shut-down. "I don't think it's hit a lot of drivers yet — I'm surprised that we haven't gotten more worried emails from drivers," Campbell said. "But drivers are the ones who get screwed in the meantime while they figure this stuff out."SEE ALSO: 'This is why people are so angry': Tech giants like Google, Facebook, and Uber built their empires on the backs of contractors. A pandemic is showing just how horrifically that model failed American workers. Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America
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The companies, under legal pressure to reclassify their drivers as employees, said they would halt rides...The companies, under legal pressure to reclassify their drivers as employees, said they would halt rides unless an appeals court gives them permission to continue.
Preliminary injunction in California follows state’s lawsuit against companies over new labor lawA California judge has...Preliminary injunction in California follows state’s lawsuit against companies over new labor lawA California judge has issued a preliminary injunction that would block Uber and Lyft from classifying their drivers as independent contractors rather than employees.The move on Monday came in response to a May lawsuit filed by the state of California against the companies, which alleged they are misclassifying their drivers under the state’s new labor law. Continue reading...
Uber's CEO took a shot at labor groups, accusing them of being driven by 'politics' in the massive fight over drivers' employment status (UBER, LYFT)
Uber CEO Dara Khosrowshahi slammed labor groups that oppose the company's stance on drivers' employment status,...Uber CEO Dara Khosrowshahi slammed labor groups that oppose the company's stance on drivers' employment status, accusing them of being motivated by "politics." During a call with investors Thursday, Khosrowshahi said groups on Uber's side of the issue, conversely, "actually are taking into account the wants and needs of drivers." Uber and other gig economy companies are engaged in a massive legal and political battle, most notably in California, over whether their drivers are employees or independent contractors. The state's regulators have ruled that drivers are employees under its gig worker law and have taken Uber and Lyft to court over the issue, while the companies have pumped $30 million each into a ballot measure that would exempt them from the law. The stakes are high — analysts said last year that an adverse ruling on the issue could bankrupt Uber and Lyft. Visit Business Insider's homepage for more stories. Uber CEO Dara Khosrowshahi took a shot at labor and driver advocacy groups on Thursday over their stance on drivers' employment status, accusing them of not representing drivers' interests. During Uber's quarterly earnings call, Khosrowshahi said groups opposing Proposition 22 — the company's ballot measure in California that would permanently make drivers independent contractors — are motivated by "politics." "We've got terrific supporters [of Proposition 22] in the community as well who actually care about drivers, versus labor unions and politics, they actually are taking into account the wants and needs of drivers," he said. Labor and driver groups pushed back on Khosrowshahi's comments. "It is the height of hypocrisy for Uber's rich executives to feign that they care about drivers when they are spending hundreds of millions on a ballot proposition to prevent those workers from receiving the wages, healthcare, and fundamental rights that they have been granted under California law," Transport Workers Union president John Samuelsen told Business Insider. Carlos Ramos, a driver and organizer for Gig Workers Rising, said: "From my years of organizing with fellow drivers I can unequivocally say that Dara's words do not reflect Uber's actions. They never have. Uber has always attempted to deceive drivers around new policies and procedures, claiming that changes were made in the best interest of drivers." In California, Uber, Lyft, and other ride-hail and food delivery companies are in the middle of a heated battle over whether drivers are employees or contractors under the state's gig worker law, AB-5, which went into effect this year and raised the bar companies must clear in order to treat workers as contractors. While the lawmakers behind AB-5 argued it made Uber drivers employees, the companies have refused to reclassify drivers, sparking multiple legal and political battles over the issue. In June, the state agency responsible for regulating Uber and Lyft ruled that ride-hail drivers are considered employees under AB-5, and a month earlier, a group of attorneys general from the state, Los Angeles, San Francisco, and San Diego sued both companies over their alleged refusal to comply with the law. On Wednesday, Uber and Lyft got hit with another lawsuit from the state's labor commissioner, who accused them of wage theft by refusing to pay drivers minimum wage, sick pay, unemployment, and other benefits guaranteed to employees under California law. Unlike employees, contractors aren't guaranteed those same benefits, and companies aren't bound by certain labor regulations around minimum wage payments or subject to payroll taxes for those workers, which feed into programs like unemployment insurance. But Uber is hoping that Proposition 22, which it introduced last fall along with Lyft, DoorDash, Postmates, and Instacart, will pass in November, allowing drivers to remain classified as contractors and making its legal battles a moot point. The companies have pumped more than $110 million into a group supporting the initiative, with Uber, Lyft, and DoorDash contributing $30 million each. Khosrowshahi called Proposition 22, which also includes new benefits for drivers such as higher wages and some reimbursement for health insurance and vehicle-related expenses, "the best of both worlds." But driver groups have slammed the companies' proposal, saying it shortchanges drivers by not fully accounting for the actual work they do and the costs they incur. For example, under Proposition 22, drivers would not be paid for the time they spend waiting to get matched with a rider, and they would be reimbursed only $0.30 per mile (the IRS per-mile rate for business-related travel is 57.5 cents, by comparison). Both Uber and driver groups claim that drivers are on their side with regards to the initiative. Khosrowshahi said the "vast majority of drivers" support it, while Ramos said "tens of thousands of drivers are organizing against" it. The stakes are undoubtedly high for both drivers and the companies. When AB-5 passed last year, analysts at Barclays concluded that having to reclassify drivers as employees in California alone could cost Uber and Lyft an additional $3,63 per driver. "We think an adverse ruling on the contract workforce issue would potentially bankrupt both Uber and Lyft," they concluded.Join the conversation about this story » NOW WATCH: Why thoroughbred horse semen is the world's most expensive liquid